Category Archives: British-American Tobacco

Several U.S. Senators and Congresspeople have signed a letter to the U.S. Department of Justice urging the agency to begin an investigation into bribery accusations against British-American Tobacco.

I wrote about some of these accusations a few weeks ago here. However, according to the letter from Congresspeople, the accusations go beyond those exposed in a recent BBC documentary about British-American Tobacco.

The politicians, led by congressman Lloyd Doggett and senator Richard Blumenthal, suggest that BAT’s actions may have violated both the Anti-Bribery and the Foreign Corrupt Practices Acts (FCPA). If proven, the allegations – denied by BAT – could result in jail terms for the company’s executives.

Some of the allegations about BAT’s activities in parts of Africa first surfaced in a BBC Panorama documentary last year. Since then, US lawmakers say that additional documents have come to light, which they claim suggest alleged bribery may have been more widespread than previously thought.

It is alleged that the documents raise questions as to whether BAT paid people off to protect its corporate reputation and to cover up scandals, including environmental damage caused by a warehouse fire in Uganda. There are also claims that the company engaged in corporate espionage and the sabotage of competitors in Kenya. “If true, these allegations would demonstrate a deplorable choice by BAT to balloon its profits through bribery at the expense of the health of millions,” said Doggett. “Any corporation that enjoys the benefits of our stock exchange must comply with our anti-bribery laws.”

According to a BBC documentary on British-American Tobacco, the company was bribing officials in African nations to weaken laws regarding tobacco marketing and packaging. Tobacco companies have been pulling out all the stops, including intimidation, threats of lawsuits and getting the U.S. Chamber of Commerce to pressure countries to combat any kind of anti-smoking measures in small nations, which simply don’t have the money or resources to fend off these powerful companies.

The nations involved in the BBC documentary include Rwanda, Burundi and the Comoros Islands.

Though British-American Tobacco is based in the UK, the company is the third-largest tobacco comglomerate in the U.S., behind Philip Morris and RJ Reynolds. BAT brands include Pall Mall, Lucky Strike, Kool, Kent and Benson & Hedges. British American Tobacco is already under investigation in the UK and has publicly stated that whatever bribery schemes took place were the result of a “rogue employee.”

This is part of an ongoing series of articles about Big Tobacco’s desire to expand into emerging markets in the Third World — mostly Africa and South Asia — because of the decline of smoking rates in the West.

This awesome piece by BBC, with the help of a corporate whistleblower, shows that British American Tobacco, a seriously major player in the international tobacco business, was bribing government officials in East African nations to weaken laws on tobacco packaging and marketing.

According to email evidence obtained by the BBC from the whistleblower, British American Tobacco (BAT brands include Lucky Strike, Kent, Pall Mall, Kool and Benson & Hedges) bribed a member of the World Health Organization Framework Convention on Tobacco Control, which is the agency trying to reduce smoking in developing nations.

British American Tobacco also bribed officials from Burundi and the Comoros Islands $3,000 each and an official in Rwanda $20,000.

“It is using bribery to profit at the cost of people’s lives, simple as that,” she said.

“BAT should be investigated by the government and should be punished accordingly.”

The bribe to the Burundi official was to receive a copy of that country’s draft tobacco control bill and to insure that the official “accommodate” British American Tobacco in adding certain amendments to the bill.

British American Tobacco is trying to claim that these were the actions of rogue employees and that the company is conducting its own investigation (Ie, looking for ways to cover its ass).

This isn’t looking good for British American Tobacco. The whistleblower recorded conversations with a BAT attorney, telling the attorney that the company would have to continue paying government officials to keep their mouths shut about the bribes.

According to the BBC, the lawyer responded: “That is what we are going to be paying. Yeah, OK, fine. Anything else that you think we will need to be paying for?”

This isn’t surprising to me in the least because Big Tobacco has been extremely aggressive trying to expand its markets in these smaller countries, using trade agreements, litigation and even using the U.S. Chamber of Commerce as an ally to bully smaller nations into dropping laws regulating tobacco packaging or marketing. The industry has been utterly shameless about this and its tactics around the world have gotten the attention of the New York Times and John Oliver. And they have also shown that they’re both desperate enough and sleazy enough to resort to out-and-out bribery.

British American Tobacco is under criminal investigation for the accusations from the Serious Fraud Office in the United Kingdom. Let’s hope this results in some indictments. Good job, BBC.

Yes, the tobacco industry has taken some big hits in the past 30 years. A sharply declining smoking rate, from over 50 percent in the 1960s to approximately 18 percent today; the massive $280 billion Master Settlement Agreement in 1998; the Engle judgements out of Florida; and higher taxes in most states over the past 15 years.

However, from the Business Cheat Sheet story.

Then came the good news. According to a Credit Suisse research report released last week, tobacco is America’s most successful industry. The report states that the average returns from a company listed on the stock exchange was about 10% per year from the period between 1900 and 2010. Tobacco stocks, however, produced annualized returns of 14.6% during the same period. In terms of hard cash, this means that a single dollar invested in tobacco stocks was worth $6.3 million by 2010, while a dollar invested in a stock market index would only be worth $38,255.

However, as Business Cheat Sheet points out, the tobacco industry has simply rolled with the changes. There’s a reason the average cost of cigarettes has gone from $1.50 a pack in 1990 to $5.50 a pack in 2015. All those added costs — taxes and settlements — have simply been passed on to cigarette consumers.

According to this article, the $280 billion MSA and other litigation raised the cost of cigarettes by 10.9 cents a pack in the late 1990s. However, the price of cigarettes increased by an average of 14 cents a pack. The industry simply kept the change. When your customers are addicted to nicotine, there’s nowhere else to go.

Business Cheat Sheet also points out that the tobacco industry is an oligopoly — a large industry basically controlled by a very small number of companies. In the U.S., there’s really only four major tobacco companies — Philip Morris, RJ Reynolds, Lorillard and British-American Tobacco. And when the merger of RJ Reynolds and Lorillard is complete, that number will be down to three (BAT, which is big internationally, has a tiny share of the market in the U.S.). In fact, get this, there has not been a new major tobacco company formed in 56 years.

Worldwide, a mere five major companies — Philip Morris, BAT, Japan Tobacco International, Reemsta and Altadis — control 45 percent of the market. A huge percentage of the rest of the world market is in state-controlled in China.

To quote from the article:

As a result, competition within the industry is rare and the incentive to innovate on products and prices is low.

To add to that, cigarettes have an inelastic demand curve. This means that demand stays constant, even in times of recession. Thus, the tobacco industry manages to make profits because product margins improve, even if the overall product volume sold decreases.

The tobacco industry is booming in developing nations.

The third reason the industry continues to thrive — burgeoning markets in the Asia and Africa.

The smoking rate has not only declined dramatically in the U.S., but through most of the Western World. This was historically where the tobacco industry made the bulk of its revenues. But, as John Oliver pointed out last week, the developing world is completely different, where there is not as much education about the dangers of smoking and frankly for a lot of people, living conditions are so poor, there’s a level of apathy toward the dangers of smoking even when they are known. U.S. tobacco companies simply drool over these huge markets in Brazil, Africa, India, Indonesia the Philippines. (They’d be going after China, too, but China won’t allow it).

It can seem a daunting task fighting an industry that continues to thrive despite losing so many regulatory, legal and PR battles. Killing the industry won’t happen tomorrow and won’t happen next year or in the next decade. It’s definitely a process of chipping away at it.